MRV hit hard by telecom fallout, Luminent buyback. (Corporate Focus).

OFFICIALS at struggling computer networking equipment maker MRV Communications Inc. must feel like its deja vu all over again. Declining market share and a stock price that is falling like a rock have the first quarter of 2002 looking a lot like 2001 as the company struggles with declining orders for its high-end computer networking equipment.

"I don't really know what else they can do," said analyst Bob Lam of Bear Stearns.

MRV CEO Noam Lotan said the company was severely impacted by reduced orders from Europe in particular, which makes up 64 percent of its market.

Lotan said the company has unified its several separate sales units and is focusing on its newly released fiber optic platform capable of carrying up to 16 high bandwidth channels -- more than any other company -- along with new next-generation repeaters and amplifiers for fiber optic networks.

"We have not seen any signs of a rebound and we believe revenue will be flat in the second quarter," he said.

For the quarter ending March 30, MRV reported a net loss of $32.5 million on revenue of $62.4 million, compared to a net loss of $54.3 million on $100.1 million in revenue a year earlier.

MRV's troubles are symptomatic of an industry that's been hit hard by a sluggish economy that forced tech giants like Alcatel S.A. and Cisco Systems Inc. to cut back on equipment orders.

"MRV and other suppliers are getting the brunt of an economic climate that shows no sign of letting up," said Fredrik Hernstrom, an analyst with Hidden Asset Report.

Having lost more than 80 percent of its stock value since hitting a 52-week high of $13.75 last May 21, MRV is seen, no longer even as a potential dark horse on Wall Street, but a high risk stock with few buyers.

The company's dependence on an industry that continues to weaken, despite earlier predictions of a mid-year recovery, makes the stock an iffy proposition, Hernstrom said.

"They focused in an area that's taken the hardest hit and they're trying to work their way around that," he said, referring to MRV's focus on the core network business.

After spinning off its optical components unit, Luminent Inc., in 2000, the company brought it back into the fold less than a year later in a convoluted stock swap that further depressed MRV's stock price.

MRV closed at $2.22 on April 26. The stock hit its all-time high of $97.44 per share in March 2000.

Luminent's troubles began in early 2001 when the bottom dropped out of the fiber optics market as big operators like Verizon Communications Inc. and AT&T Corp. abruptly halted plans to build massive proposed networks, said Jonathan Kramer, a Los Angeles-based independent analyst.

"Bringing Luminent back just dragged down that stock and it made investors worry," he said. "Some people couldn't differentiate between losses from Luminent and losses from MRV."

As part of the restructuring, Luminent laid off 600 workers, or about a third of its total workforce, in mid-2001. Altogether, the restructuring is expected to cost the company an additional $8.4 million over the next two quarters, the company said.

Despite a headlong drop in stock price since last summer, it was temporarily bolstered in March by the announced cancellation of the sale of an undetermined number of shares by MRV chairman Shlomo Margalit and company president and Lotan.

Most analysts have stopped covering the company, but a few still hold out some hope for turnaround as early as next year.

"In the broader picture, you've got to look to the customers who are focusing on the edge of the network and, if that opens up, then the core network (MRV' s market) will open up," said Chet White, an analyst with Well Fargo Van Kasper.

The company, which lost CFO Edmund Glazer who was aboard the first plane to hit the World Trade Center on Sept. 11, is still optimistic about a possible recovery because of a number of new less-expensive optical components and network infrastructure products.

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MRV Communication Inc.

Stock Prices

April 26, 2001  $8.80
April 26, 2002  $2.22

Note: Table made from line graph
YEAR (Dec. 31)                   2002     2001

Revenue (millions)              $319.4   $332.8
Cost of Goods (millions)        132.4    183.5
Operating Expenses (millions)   336.6    455.9
Operating Loss (millions)      (149.6)  (306.6)
Net Loss (millions)             (153)   (326.4)
Loss Per Share                 ($2.33)  ($4.27)

RELATED ARTICLE: SUMMARY

Business: Computer network equipment maker

Headquarters: Chatsworth

CEO: Noam Lotan

Market Cap: $203.2 million Dividend Yield: NA (*)

Total Liabilities: $279.8 million P/E: NA

Long-Term Debt: $98.5 million

(*) MRV does not pay dividends